Final Results

DiamondCorp plcJSE share code: DMCAIM share code: DCPISIN: GB00B183ZC46(Incorporated in England and Wales)(Registration number 05400982)(SA company registration number 2007/031444/10)('DiamondCorp' or 'the Company')

Final Results for the year ended 31 December 2011

DiamondCorp plc, the African diamond mining and exploration company, releases its audited results for the year ended 31 December 2011. The Company's Annual Report and Accounts and Notice of Annual General Meeting will be posted to shareholders on 1 June 2012 and will be available on the Company's website (www.diamondcorp.plc.uk) shortly.

Contacts:

AIM Nomad: Fairfax I.S. PLC

AIM Brokers: Fairfax I.S. PLC, Ocean Equities LtdJSE Sponsor: PSG Capital (Pty) LimitedDiamondCorp plc - Paul Loudon +27 56 212 2308/ Euan Worthington +44 775 3862 097Fairfax I.S. PLC - Ewan Leggat/Laura Littley +44 207 598 5368Ocean Equities Ltd - Guy Wilkes +44 207 786 4370PSG Capital (Pty) Ltd - John-Paul Dicks +27 21 887 9602Russell & Associates - Charmane Russell +27 11 880 3924

LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE

Dear Shareholder,

When we wrote to you a year ago, our mining team at Lace had just completed driving a ramp down to the 26 level (-260m from surface) and intersected the main kimberlite pipe. We had hoped to extract a 30,000 tonne bulk sample from six (3metre x 3metre) parallel development drives across the full area of the 2.5 hectare main pipe by the end of July 2011. However, on entering the pipe at this level, we discovered three different kimberlite types, two of which had not been intersected in drilling from the surface. Sampling conditions proved difficult in these less competent facies and in the event we decided, by the end of September 2011, that we had extracted enough ore to give us a representative sample and for reasons of safety we stopped mining on that level. A total of 15,414 tonnes of ore were extracted from three different kimberlite facies and 2,157.41 carats of diamonds were recovered. Importantly, the brown volcanoclastic kimberlite, which is the dominant VK facies below the 33 level (-330m), returned a bulk sample grade of 26 carats per hundred tonnes (cpht).

These results gave our technical advisors enough confidence to recommend that we proceed to a full engineering study and the Board agreed to commission SRK Consulting (South Africa) (Pty) Ltd ("SRK") to produce an independent engineering report. The SRK report, which was finalised in March this year, validated the project and recommended that we initiate mining with a block cave on the 47 level (-470m). Ore will be crushed underground and carried to surface on a conveyor system for treatment through the existing 1.2mtpa plant.

Near Jwaneng in Botswana, during Q4 2011, we carried out wide diameter mini bulk sample drilling of the two kimberlites which we had previously discovered were diamondiferous. We had high hopes for these targets after the initial core drilling, kimberlite type, diamond counts and proximity to Jwaneng, the richest diamond mine in the world. However, as is often the case in diamond exploration, the results from the mini bulk tests indicated that neither J-01 nor J-05 were likely to be economic diamond mines at this time. Consequently, we have decided not to proceed further with this project.

The Diamond Market

After the very strong rally from the lows of early 2009 when the WWW International Diamond Consultants Ltd overall index of rough diamond prices rose more than threefold, the market was due a setback and in the middle of last year, we saw a correction (c25%) before some recovery towards the end of the year which has continued so far in 2012.

In February 2011, we sold a package of 1,321 carats recovered from the Lace tailings for an average of US$94/ct which compared to the highest price before the 2008 crash of $55/ct in September that year and the lowest of $33/ct from a small scale in May 2009.

The diamonds recovered from the bulk sample were valued by experts at the South African Diamond Exchange last September/October with an average price of $160/ct after what was estimated to have been a 25% drop in previous weeks. This value was one third higher than the Company's original base case price of $120/ct. We have not sold this parcel of 2,157.4 carats of diamonds which have more recently been valued at $172/ct by the South African Diamond Exchange.

We remain confident about the future of the diamond market with strong demand from China, India and other parts of Asia expected to add to a growing recovery in US consumer demand. As we and many other observers have noted before, the only significant new source of diamonds worldwide are the Marange diamond fields in Zimbabwe. These stones are having some impact on the smaller and lower quality end of the diamond market but are not expected to fill the emerging gap between supply and demand, particularly for stones over 1ct.

The Lace Mine

The Lace mine, 200km southwest of Johannesburg, is owned and operated by our 74% owned subsidiary Lace Diamond Mines (Pty) Limited. The mine has a granted mining right, grid power and is fully compliant with South Africa's black economic empowerment ("BEE") regulations. Well known and established BEE groups Shanduka Resources and Sphere Holdings each own 13% of Lace Diamond Mines (Pty) Ltd.

Early in 2011, the 1.2mtpa Lace processing plant, which had been on care and maintenance since 2009, was recommissioned in readiness for the underground bulk test which was completed in October. The plant operated to design specification throughout the bulk test, and is now being used for the retreatment of tailings. The diamonds recovered from tailings retreatment will be tendered on a regular basis during development of the underground mine and will contribute a valuable credit to the development cost.

During the year we also commenced crushing of our waste rock at the mine for sale through a contractual arrangement with African Mobile Crushers. Revenue from this activity will also provide a small credit to the underground development cost.

Bulk Sampling Results

Bulk sampling of kimberlite types was undertaken in June-September 2011 between the 25 and 26 levels.

The planned underground development involves the establishment of a continuous trough block cave on the 47 level. The first block cave will allow the extraction of approximately 9mt of kimberlite over an 8-9 year period, followed by subsequent block caves on the 67 level (-670m) and the 85 (-850m) level over a 25 year mine life. Block caving is used in most South African underground kimberlite mines and allows very low operating costs compared with other mining methods.

The cost of this development is estimated at R384 million (approximately $50 million). The mine will take an estimated 43 months to reach full production but should start to produce diamonds after month 18 as much of the development work from that date takes place within diamond bearing kimberlite. While establishing the mine, approximately 600,000 tonnes of kimberlite will be mined and the diamonds recovered sold. The revenue generated from these sales will provide an important credit towards the overall development cost and limits the peak forecast funding requirement to approximately R285m ($37m), 25 months after development commences.

Our company benefits from the experience of our group mining consultant Bob Harverson, who spent a large part of his career with De Beers and was involved with the design and implementation of similar block caves at Premier (now Cullinan) and Finsch mines.

Safety is a prime concern to our Company and we are pleased to report that during the year under review, the Lace mine operated without any lost time injuries or fatalities.

Following the completion of the bulk test, our underground mining fleet was in need of a major overhaul prior to the commencement of mine development. We constructed a heavy equipment workshop during 2011 and a programme of 5,000 hour machine rebuilds was initiated.

Once our project finance is available for drawdown, activities at the mine will rapidly pick up speed in order to meet the development schedule we have set ourselves. Our workforce will increase from the current 62 employees to more than 200 during underground development and the majority of these jobs created will exist for the life of the mine.

In terms of our commitment to corporate and social responsibility, we concentrated our efforts on the Doornspruit school near the mine during the year, refurbishing classrooms, building washrooms and providing necessary text books. In the year ahead, it is our intention to fund the establishment of a brick making business which will utilise the crushed mine waste rock from Lace to build bricks for the local market. Since the year end, we are pleased to have appointed Andre Labuschagne as the new mine manager at Lace. Andre has considerable experience mining kimberlites from underground and was previously mine manager for Petra Diamonds at the Sedibeng mine. Andre will work with Bob Harverson and chief operating officer Steve West in implementing the 47 level block cave development, the success of which will be a cornerstone achievement in the building of our company.

Lace Mine Resource Statement

Resource statement prepared March 2012 by VP3 Geoservices (Pty) Limited in accordance with the SAMREC Reporting Code.

Corporate and Financing

In January 2011, we appointed resource specialist Ocean Equities Ltd, as joint brokers and in March last year selected Fairfax I.S. PLC as our new Nominated Adviser and joint broker. Together, in June 2011, they raised £3.48 million gross for us at 13p per share to fund our exploration programme in Botswana and general working capital.

As noted in our statement last year, we were seeking "to raise a further £10 - 12 million in the near future". Therefore with the good bulk sample results in hand, we went out marketing to existing and new institutions in October 2011. We had some very positive feedback but ultimately, the Greek debt crisis and setback in diamond prices exerted too much negative force. We had enough headroom to issue 31.6 million shares at 6.5p which allowed us to pay off debt and accrued interest due to the Africa Opportunity Fund LP and give us £0.6 million of working capital.

In hindsight, the inability to raise this equity finance for the underground development at Lace has been in the best interests of shareholders, since it gave us time to carry out further studies on the optimum mine planning, and as you have recently seen, move towards securing a debt finance package from the Industrial Development Corporation of South Africa Limited (IDC) which will not dilute shareholders' value.

Another piece of good news came at the end of last year when our South African operating subsidiary Lace Diamond Mines (Pty) Limited reached an agreement with Mutual and Federal Insurance Limited on a claim for damage to timbers and pumps in the vertical shaft at the Lace mine incurred during heavy rains earlier in the year; after deductibles, we received R25 million (£2.2 million).

Last month, the IDC presented us with a Term Sheet offering Lace Diamond Mines (Pty) Limited a loan of R280 million (£21.3 million) subject to the completion of due diligence for underground development and purchase of mining equipment. Your Board has reviewed and accepted this Term Sheet which will cover 98% of the estimated capital cost for development of the first block cave on the 47 level at Lace. We anticipate that the loan financing agreement will be finalised by the end of July 2012.

The Future

We have been rebuilding our underground mining fleet ready to start underground mining as soon as possible. We then estimate that it will take 18 months to mine down to the 47 level where we will establish a development level of troughs, slots and haulage ways for the first block cave. The mining at that level will be in kimberlite, so we expect our first revenues before the end of Q1 2014 with full production in Q2 2015.

Planned Lace Mine Production (carats)

Please see the link at the end of this announcement for a graph of the planned Lace Mine Production.

There will be much work to be done at Lace in that period, but with that mine's future now expected to be secure, we will be turning more seriously to the search for opportunities to build your company into a mid-tier diamond miner.

In Conclusion

A year ago, we could not have anticipated the good and bad luck which would come our way, and although it would have been very exciting to have discovered a new mine in Botswana, we have proved up the viability of Lace and secured a strong partner in the IDC. We must thank all our employees and managers for their hard work and enthusiasm which has helped us reach this position with an exciting future for the Company.

CONSOLIDATED INCOME STATEMENT

Year ended 31 December 2011

All of the activities of the Group are classed as continuing.

* The Group presents an alternative measure of loss per share after excluding all capital gains and losses from the loss attributable to ordinary shareholders (see note 7).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE

Year ended 31 December 2011

COMPANY INCOME STATEMENT

Year ended 31 December 2011

All of the activities of the Company are classed as continuing.

There were no other gains or losses during the year.

CONSOLIDATED BALANCE SHEET

31 December 2011

The financial statements of DiamondCorp plc, registered number 5400982, were approved by the Board of Directors and authorised for issue on 30 May 2012.

Signed on behalf of the Board of Directors

E A Worthington

Director

COMPANY BALANCE SHEET

31 December 2011

The financial statements of DiamondCorp plc, registered number 5400982, were approved by the Board of Directors and authorised for issue on 30 May 2012.

Signed on behalf of the Board of Directors

E A Worthington

Director

STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2011

STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2011

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2011

COMPANY CASH FLOW STATEMENT

Year ended 31 December 2011

AUDIT OPINION

The auditors, Deloitte LLP, have audited the financial statements for the year ended 31 December 2011. A copy of their audit report, which is unqualified but contains an emphasis of matter (which is reproduced below), will be sent to shareholders with the report and accounts and will be made available for inspection at the Company's registered office.

EMPHASIS OF MATTER - GOING CONCERN

In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 1 to the financial statements concerning the company's ability to continue as a going concern. The Group incurred a net loss attributable to the equity holders of the parent of £3,823,586 and the company incurred a net loss of £2,082,132 during the year ended 31 December 2011. The Directors have prepared cash flow forecasts which indicate the business will require additional funding in the next 12 months. As described in note 1, the Directors have signed a term sheet with the Industrial Development Corporation of South Africa Limited for a R280 million (approximately £21.3 million) facility which the Directors expect to finalise and draw down following completion of certain conditions precedent. In addition, the Group and Company will need to raise additional equity finance to supplement its cash resources in 2012. The requirement to finalise the IDC facility and the need to raise additional equity finance, along with other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.

NOTES TO THE FINANCIAL STATEMENTS

Year ended 31 December 2011

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

General information

DiamondCorp plc is a Company incorporated in England and Wales under the Companies Act 2006 and incorporated as an external company in South Africa under the Companies Act No 61 of 1973. The address of the registered office is given on page 1. The nature of the Group's operations and its principal activities are set out in the Directors' Report on page 9.

These financial statements are presented in pounds sterling because that is the functional currency of the parent Company of the Group. Foreign operations are included in accordance with the policies set out in this note.

a) Adoption of new and revised International Financial Reporting Standards

The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements, but with the exception of the amendment to IFRS 1, may impact the accounting for future transactions and arrangements.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

The adoption of IFRS 9 which the Group plans to adopt for the year beginning on 1 January 2013 will impact both the measurement and disclosures of Financial Instruments. The Directors do not expect that the adoption of the other standards listed above will have a material impact on the financial statements of the Group in future periods.

b) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

c) Basis of preparation

The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on fair value of the consideration given in exchange for assets. The financial statements have been prepared on a going concern basis. The principal accounting policies adopted are set out below.

d) Going Concern

In determining the appropriate basis of presentation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future, this being a period of not less than 12 months from the date of the approval of the financial statements. The Group's business activities and goals are set out in the Letter from the Chairman and Chief Executive.

During the next 12 months the Group will be in a mine-development phase and forecasts indicate that the Group would have insufficient financial resources to accomplish all its development goals and meet all its financial obligations over the next 12 months with its current level of funding. As a result, the Group signed a detailed loan funding term sheet on 18 May 2012 with the Industrial Development Corporation of South Africa Limited ("IDC"), pursuant to which the main terms of a proposed loan funding were agreed in principle. It is intended that the loan funding term sheet will form the basis of the final loan financing agreement. Under the terms of the loan funding term sheet, IDC (the "Lender") has agreed to provide a loan facility to Lace to the value of R280 million (approximately £21.3 million) for the purpose of underground development and purchase of mining equipment at the Lace mine.

The loan will be secured over the assets of Lace and will be guaranteed by the parent company. The term of the loan is expected to be 7 years. It is anticipated that the loan will attract an interest rate of 2% over the South African Prime Rate (which is currently 9%), such interest to be capitalised for the first two years from the draw down date and payable semi-annually in arrears thereafter. There will also be a two year moratorium on loan repayments.

The provision of the loan is subject to certain conditions precedent, including the completion of satisfactory due diligence by the Lender and unconditional approval by the Lender's executive committee and/or board of Directors. Subject to satisfactory completion of due diligence and satisfaction of the conditions precedent, including approval for the upgrade of the electricity supply to the mine by Eskom, the Directors anticipate that the loan financing agreement will be finalised by the end of July 2012. The loan financing agreement will include representations and warranties from the Borrower that are usual for transactions of this nature.

While it is anticipated that adequate funding for the development at Lace will be available via IDC, the Company will have to supplement cash resources by accessing equity markets in 2012.

The conditions to be satisfied in the loan financing to be approved by the lender and the requirement to raise additional equity funds indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern. After reviewing the IDC conditions in detail and making an assessment of the Group's ability to raise further equity funds, the Directors have a reasonable expectation that the group can meet all conditions precedent for finalising the loan and raise additional equity funds as required and therefore they continue to adopt the going concern basis of presentation of the financial statements.

e) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group's ownership interests in existing subsidiaries

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

f) Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised.

Where a business combination is achieved in stages, the Group's previously-held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date, except that:

- deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;

- liabilities or equity instruments related to the replacement by the Group of an acquiree's share-based payment awards are measured in accordance with IFRS 2 Share-based Payment; and

- assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year.

Business combinations that took place prior to 1 January 2010 were accounted for in accordance with the previous version of IFRS 3.

g) Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to the Group's cash-generating unit expected to benefit from the synergies of the combination. The cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

h) Intangible assets

Exploration and evaluation expenditure comprises costs which are directly attributable to the acquisition of exploration licenses and subsequent exploration expenditures.

Exploration and evaluation expenditure is carried forward as an asset provided that one of the following conditions is met:

i) Such costs are expected to be recouped in full through successful development and exploration of the area of interest or alternatively, by its sale;

ii) Exploration and evaluation activities in the area of interest have reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves with active and significant operations in relation to the area continuing, or planned for the future.

Identifiable exploration and evaluation assets acquired are recognised as assets at their cost of acquisition. An impairment review is performed when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amounts. Exploration assets are reassessed on a regular basis and these costs are carried forward provided that at least one of the conditions outlined is met. Exploration rights are amortised over the useful economic life of the mine to which it relates, commencing when the asset is available for use.

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

Capitalised pre-production expenditure includes costs incurred and capitalised during the plant construction phase which are intangible in nature. Prior to obtaining the Mining Right in 2008, which was granted for a period of 20 years, these capitalised expenditures were amortised over the life of the work in progress. Since the grant of the Mining Right these expenditures will be amortised at a rate of 5% based on the life of the Mining Right.

Rights to use the Power Line are capitalised at their cost of acquisition and are being amortised over the useful economic life at a rate of 5% per annum.

Underground exploration and evaluation expenditure will be amortised from the point at which it is available for use over its useful economic life, expected to be 5% per annum.

i) Property, plant and equipment

Property, plant and equipment is stated at cost less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Depreciation is charged so as to write off the cost, less estimated residual value on assets other than land, over their estimated useful lives, using the straight line method, on the following bases:

Land is not depreciated. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

j) Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to the present value using a pre‑tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash‑generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

k) Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable losses for the period. Taxable loss differs from net loss as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

l) Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Cash and cash equivalents

Cash and cash equivalents comprises cash in hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Intercompany receivables

Intercompany receivables are initially recognised by the Company at fair value and are subsequently measured at amortised cost using the effective interest rate method.

m) Foreign currencies

The individual financial statements of each Group Company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group Company are expressed in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not translated.

Group and Company

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

In addition, in the case of presenting consolidated financial statements, any foreign exchange differences arising on elimination of intercompany loan balances upon consolidation of the Group Companies, are classified as equity and transferred to the Group's translation reserve, as these loans are for long term investment purposes.

Determining the rate of exchange to be used:

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as other comprehensive income and transferred to the Group's translation reserve. Such translation differences are recognised in the income statement in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

n) Restoration, rehabilitation and environmental costs

An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mining property. Such costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided for and capitalised at the start of each project, as soon as the obligation to incur such costs arises. These costs are charged against profits over the life of the operation, through the depreciation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses.

Changes in the measurement of a liability relating to the decommissioning of plant or other site preparation work that result from changes in the estimated timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related asset in the current period. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in the income statement. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy above.

o) Inventories

Inventory and work in progress are valued at the lower of cost and net realisable value.

Work in progress relates to tailings and was valued at the time of acquisition at £2.84 per carat based on an in situ valuation equivalent to 8% of the market value of US$63 per carat achieved at a sale of Lace project diamonds in May 2005. The number of carats in inventory (370,285 carats) was based on an expert determination provided to the Company by a qualified external valuer. Work in progress is being amortized on the units of production method.

Inventory relating from development of the underground is carried at the value determined by the South African Diamond Exchange which is considered to be a reliable reflection of market value.

p) Revenue

Revenue from the sale of diamonds is recorded when the diamonds are sold at tender. The Lace plant was commissioned on 1 October 2007 before full operations were suspended in 2008.

Revenue earned from sales prior to the new operations achieving commercial production are recognised as a reduction in the carrying value of the pre-production expenses held within intangible assets. Revenue is measured at the fair value of the consideration received or receivable.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying value.

Revenues from the sale of carats recovered during the development phase are recognised as a credit against the cost of development.

q) Finance leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

r) Share-based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 19.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

SAYE share options granted to employees are treated as cancelled when employees cease to contribute to the scheme. This results in accelerated recognition of the expenses that would have arisen over the remainder of the original vesting period.

For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year.

s) Critical accounting judgements

In the process of applying the Group's accounting policies, which are described above, the Directors have made the following judgements that have the most significant effect on the amounts recognised in the financial information.

- Valuation of inventory - Judgement was applied in calculating the initial carrying value of inventory and judgement continues to be applied in assessing the net realisable value - see accounting policy n) above.

- Valuation of warrants, share options and ordinary shares issued as consideration - Judgement is applied in determining appropriate assumptions to be used in calculating the fair value of warrants, shares and share options issued - see notes 18 and 20.

- Impairment of goodwill and other intangible assets - Judgement is applied in determining appropriate assumptions to be used in testing for and calculating impairment - see policy f) and g) above.

- Going concern - Judgement is applied in assessing the likelihood and timing of future cash flows associated with the Group's activities. Judgement is also applied in assessing the likelihood of receiving future funding - see page 29.

2. BUSINESS AND GEOGRAPHICAL SEGMENTS

For management purposes, the Group has one business and geographical segment - diamond mining and exploration in the Republic of South Africa. In 2010 the Group also commenced exploring for diamonds in Botswana, but this project was terminated during 2011.

3. OPERATING LOSS

4. STAFF COSTS

Staff costs of the Group and Company were:

5. DIRECTORS' EMOLUMENTS

Directors' emoluments for the year ended 31 December 2011 and 2010 and for the highest paid director were as follows:

6. TAX

Group

The charge for the year can be reconciled to the loss per the income statement as follows:

In March 2011, the UK Government announced a reduction in the standard rate of UK corporation tax to 26% effective 1 April 2011. This rate reduction was substantively enacted in March 2011.

In March 2012, the UK Government announced the main rate of UK corporation tax would reduce to 24% with effect from 1 April 2012, with subsequent 1% reductions annually to 22% by April 2014. These changes were substantively enacted on 26 March 2012.

7. LOSS PER SHARE

a) Basic loss per share

Basic loss per share is calculated by dividing the loss for the year by the weighted average number of shares in issue during the year. The weighted average number of shares used is 203,928,771 (2010 - 130,765,634).

b) Diluted loss per share

International Accounting Standard 33 requires presentation of diluted earnings per share when a company could be called upon to issues shares that would decrease the net profit or increase the net loss per share. For a loss making company with outstanding options, net loss per share would only be increased by the exercise of out-of-money options. Since it seems inappropriate to assume that option holders would exercise out-of-money options, no adjustment has been made to diluted loss per share for out-of-money share options.

c) Headline loss per share

The Group presents an alternative measure of loss per share after excluding all capital gains and losses from the loss attributable to ordinary shareholders. The impact of this is as follows:

8. INTANGIBLE FIXED ASSETS

For the year ended 31 December 2011

In 2011 Lace Diamond Mines (Pty) Limited reached an agreement with Mutual and Federal Insurance Limited on a claim for damage to timbers and pumps in the vertical shaft at the Lace mine incurred during heavy rains earlier in the year; after deductibles, we received R25 million (£2.2 million) and recognised an impairment against underground capitalised expenses of R27.5 million (£2.4 million).

For the year ended 31 December 2010

The Group tests annually for impairment, or more frequently if there are indications that goodwill might be impaired. The Group has one reportable business segment and all goodwill is associated with that segment. The recoverable amounts of the cash generating unit ("CGU") is determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. A post tax discount rate of 10% has been used, which is consistent with the rate used for determining the value of purchased intangibles.

The Group's test for impairment is based on several considerations including a model adopted by management from the model prepared for the Lace Mine by one of its technical advisors. This model uses grade assumptions based on the resource statement of the Group's technical advisor and it uses diamond prices considered representative of market prices. The model assumes that the Lace mine will reach full production of 1,200,000 tonnes of kimberlite in 2015 and run through 2039. The valuations of the Lace Mine generated by the Model under variable sets of assumptions as to grades, revenues and costs indicate that there has been no impairment of goodwill during the year. Management have considered the key assumptions to be reasonable. A reasonable possible change in a key assumption would not lead to an indicator of impairment of the cash generating unit which contains goodwill.

9. PROPERTY, PLANT AND EQUIPMENT

For the year ended 31 December 2011